Morgan Stanley to settle bond probe

Morgan Stanley, the world’s second-biggest securities firm, will pay $6.1 million to settle a regulator’s claims that it overcharged retail customers on more than 2,800 corporate bond sales in 2001.

The Financial Industry Regulatory Authority will fine Morgan Stanley $1.5 million and order it to pay $3.9 million in restitution to clients, plus $700,000 in interest, said James Wiggins, a spokesman for the New York-based firm. Morgan Stanley doesn’t admit or deny wrongdoing under the accord.

The authority was formed in a merger of the National Assn. of Securities Dealers and some New York Stock Exchange regulatory units. The new oversight body, which polices brokerages, began operating this week. The case against Morgan Stanley is the combined agency’s first disciplinary action.

“Morgan Stanley is pleased to settle this matter, which occurred six years ago,” Wiggins said. “The settlement provides for appropriate client reimbursement, and the firm has since adopted new policies for supervision and control.”

Kenneth Carberry, a bond trader at the firm, will also pay a fine and will be suspended for 15 days. Wiggins said Carberry wasn’t available for comment.

Regulators said that Morgan Stanley imposed excessive markups of as much as 18% on surplus notes issued by Lumbermens Mutual Casualty Co., a unit of Kemper Insurance Cos.

“Firms have a fundamental obligation to their customers to offer securities at prices that are fair and reasonable,” Susan Merrill, the agency’s chief of enforcement, said in the release. “Morgan Stanley and its bond trader breached that obligation.”

Morgan Stanley shares fell 50 cents to $63.88.